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Council’s duty to disclose problems with land

30 September 2016

Why pay for a LIM when you can get one free?

Anyone purchasing a property is advised to obtain a Land Information Memorandum (often called a LIM report). A LIM can be obtained from the Council for a fee. It contains details about the property including: rates, valuation, zoning and land features, environmental issues (e.g. erosion, flooding or contamination), building, resource consent, storm water and sewage information.

It is common practice, particularly when a property is being sold at auction, for the real estate agent to obtain a LIM when marketing a property for sale and make it available to prospective purchasers. Although this saves purchasers from the expense of obtaining their own LIMs, there is a downside. If the LIM contains incorrect information or omits information, it is unlikely the purchaser will be able to successfully sue the Council for any loss suffered as a result of the Council’s error or omission. A recent case confirmed this - if a purchaser does not obtain or pay for a LIM himself or herself, then the Council does not owe that purchaser a duty of care. Without a duty of care the purchaser will have no legal claim against the Council in negligence.

Council had no duty to disclose contamination of land

In Monticello Holdings Limited v Selwyn District Council [2015] NZHC 1674 Monticello had purchased some land and obtained a resource consent to subdivide it. After obtaining the resource consent Monticello discovered the land was contaminated. The land was the site of an old dump operated by a predecessor of the Council. The existence of the contamination was available in the Council’s archives but wasn’t readily available. The contamination meant there would be additional costs of $800,000 to remediate the land. Monticello sued the Council in negligence claiming the Council should have maintained accurate records about contaminated sites; it should have disclosed the existence of the former dump to Monticello; and it should have refused to grant the resource consent.

The judge held that there was a lack of proximity in the relationship between the Council and Monticello to establish that the Council owed Monticello a duty of care. This meant that the Council could not be required to consider the financial viability of the subdivision when issuing the resource consent or refuse to grant it because the Council knew (or ought to have known) the land was contaminated.

In relation to LIMs, the Court held the Council held no duty of care to the world at large in respect of its records. There would, however, be sufficient proximity to establish a duty of care to someone who applied and paid for a LIM. If Monticello had done that before it purchased the contaminated land, then it is probable the Council would have been liable if the LIM had failed to disclose the existence of the dump. The Court said that the same principle applied to Project Information Memoranda (PIMs). Only those people who were entitled to and did in fact apply and pay for a PIM could sue the Council in negligence if the Council failed to disclose all information relevant to the property. (PIMs are issued by Council. They must be obtained when application is made for a building consent. They contain information on features of the land that are relevant to the building consent.)

What can you take from this?

The Monticello case serves as a reminder that you should apply for the LIM yourself if you are purchasing a property and wish to rely on the LIM. Moreover, unless you are the person entitled to obtain and you do obtain a PIM, you will not be able to sue the Council if the PIM contains incorrect information. Finally, when applying for a resource consent from the Council if you intend to undertake any development or building on your land, you cannot rely on the Council to alert you to all potential issues about the land. You should undertake your own investigation.

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.

Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.